Most guides to changing from a sole proprietor to an LLC stop at the state filing. You pick a name, file articles of organization, pay the fee, and the LLC exists. That is the easy half. The reason people form an LLC is to separate the business from themselves, and that separation only exists if the money and the records are separated too. An LLC whose owner keeps paying business expenses from a personal card and running everything through the old sole proprietor books is an LLC on paper only. This checklist covers the bookkeeping side: what to set up, what to close out, and what to record so the new entity starts clean.
Key Takeaways
- Forming the LLC is the legal step. Moving the books is the part most owners skip, and it is what makes the liability protection hold up.
- The LLC needs its own EIN and its own bank account, and every business dollar should flow through that account from the day the LLC takes over.
- Start a new set of books for the LLC with an opening balance entry that records what you contributed, rather than continuing the sole proprietor ledger.
- Customers, vendors, and payment processors all need the new name and EIN, and your own W-9 to clients has to be reissued.
- A single-member LLC files taxes the same way a sole proprietor does by default, so the change is about separation and records, not a new tax form.
Before you begin: what actually changes
For a single-member LLC, the tax treatment usually does not change at all. The IRS treats a one-owner LLC as a disregarded entity by default, which means you still report business income on Schedule C of your personal return, exactly as you did as a sole proprietor. You can elect to have the LLC taxed as an S corporation later, but that is a separate decision with its own payroll requirements.
What changes is the legal owner of the business. The LLC now owns the assets, signs the contracts, and holds the bank account. Your books need to reflect that, which is why the sole proprietor ledger cannot simply continue under a new name.
The checklist
1. Get an EIN for the LLC
Even if the IRS doesn’t require one for a single-member LLC with no employees, get one. Banks require it to open a business account, vendors will ask for it on your W-9, and using it instead of your Social Security number keeps your personal number out of every contract and invoice. The IRS issues EINs online at no cost. Do not reuse the EIN from your sole proprietorship if you had one; the LLC is a new entity and needs its own.
2. Open a business bank account in the LLC’s name
This is the single most important step on the list. Commingling business and personal funds is the most common reason courts set aside an LLC’s liability protection. Open a checking account under the LLC’s name and EIN, and if you use a business credit card, get one issued to the LLC as well. Bring the articles of organization and the EIN letter to the bank.
3. Pick a cutover date
Choose a date on which the LLC takes over operations, ideally the first of a month. Everything before that date belongs to the sole proprietorship. Everything after belongs to the LLC. A clean cutover makes both sets of books easy to reconcile and gives your tax preparer a clear line.
4. Move the money and the assets
On the cutover date, transfer the business cash from your old account to the new LLC account. Any equipment, inventory, or other assets the business uses are contributed to the LLC at their current book value. Keep a short written list of what was contributed and its value, dated and signed. This is your record of the owner’s initial contribution.
5. Start a new set of books
Don’t rename the old company file. Create a new one for the LLC, with the LLC’s name, EIN, and start date. Set up the chart of accounts, then record a single opening balance entry dated the cutover: debit cash and each contributed asset, credit owner’s equity for the total. From that entry forward, every transaction is the LLC’s. The sole proprietor books close on the day before, and you keep them as a permanent record. The chart of accounts guide covers the setup.
6. Reconnect bank feeds and receipt capture
Connect the new bank and card accounts to the new books so transactions flow in from day one. Reconnecting is easy to forget, and the result is a month of transactions that nobody entered. Set up receipt capture on the new expense accounts at the same time.
7. Update vendors, customers, and processors
Every counterparty that has your old name or your Social Security number needs the new name and EIN:
- Clients who issue you a 1099 need a new W-9 from the LLC, showing the LLC name and EIN and the correct tax classification.
- Payment processors and online marketplaces need the business name and EIN updated so their reporting matches your return.
- Vendors with your account on file need the new billing name so invoices are addressed to the LLC.
- Invoice templates, contracts, and your website need the LLC name, and contracts signed after the cutover should be in the LLC’s name.
8. Move recurring payments and subscriptions
Go through the old account’s recurring charges and move each one to the LLC card or account: software, insurance, phone, web hosting, memberships. Anything left on a personal card after the cutover is a commingling problem waiting to be found.
9. Handle open invoices and unpaid bills
Invoices issued by the sole proprietorship before the cutover are still its receivables. The simplest approach is to collect them into the old account and transfer the cash, recording the transfer as an additional owner contribution. Bills the sole proprietorship owed can be paid the same way, or assumed by the LLC with a written note. Ask your tax preparer which they prefer before you decide.
10. Record the formation costs
The state filing fee, registered agent fee, and any legal cost of forming the LLC are organizational costs. Record them in the LLC’s books with a clear category so your preparer can apply the correct tax treatment, which allows a portion to be deducted in the first year and the rest over time.
11. Check licenses, permits, and registrations
Business licenses, sales tax permits, and a DBA registered to you personally may need to be reissued or transferred to the LLC. Requirements vary by state and city, so check each one rather than assuming it carried over.
12. Decide how you’ll pay yourself
As a disregarded single-member LLC, you take owner draws, not a salary, and the draw isn’t an expense. Record each draw against owner’s equity so the profit and loss stays accurate. If you later elect S corporation status, that changes to a payroll salary plus distributions, which is a different setup.
The cutover in one table
| Item | Sole proprietorship, before cutover | LLC, after cutover |
|---|---|---|
| Tax ID | Your SSN or old EIN | New EIN issued to the LLC |
| Bank account | Old account, closed once cleared | New account in the LLC’s name |
| Books | Closed on the day before cutover, kept as a record | New file, opening balance entry on cutover date |
| W-9 to clients | Individual/sole proprietor | LLC, with the EIN and classification |
| Contracts and invoices | Your name | LLC name |
| Owner pay | Draws | Draws, unless S corp election |
| Tax return | Schedule C | Schedule C, unless S corp election |
Scroll sideways to see all columns.
Mistakes that undo the whole point
- Keeping the old bank account as the main account and “meaning to” switch. The LLC needs to be the one transacting from the first day.
- Paying personal expenses from the LLC account. Take a draw, move it to your personal account, and spend from there.
- Continuing the old books under a new name, which leaves the sole proprietor’s history, balances, and tax year tangled with the LLC’s.
- Forgetting the W-9. Clients who still have your personal SSN on file will issue 1099s to you personally, and the income won’t match the LLC’s records.
Setting up the new books
A new entity is the natural moment to start with clean bookkeeping rather than carry old habits over. The new file needs a bank feed, a chart of accounts that fits the business, receipt capture on the expense side, and a place to record owner contributions and draws against equity. GlassJar covers those pieces: bank transactions sync into the ledger, receipts attach to expenses from a phone, and vendors and customers are set up once with the details that flow onto invoices and 1099 reports. The new business financial checklist is a good companion for the first ninety days after the cutover.
Frequently asked questions
How do I change from a sole proprietor to an LLC?
File articles of organization with your state, get an EIN, open a bank account in the LLC’s name, pick a cutover date, start a new set of books with an opening balance entry, and update every client, vendor, and processor with the new name and EIN.
Do I need a new EIN when I change from sole proprietor to LLC?
Yes. The LLC is a new legal entity and needs its own EIN. The old one, if you had it, stays with the sole proprietorship.
Do I need a new bank account?
Yes. A separate account in the LLC’s name is what keeps business and personal funds apart, and that separation is what the liability protection depends on.
Does switching to an LLC change how I file taxes?
Not by default. A single-member LLC is taxed like a sole proprietorship on Schedule C. Electing S corporation treatment changes that, but it is optional and separate.
Can I keep using my old bookkeeping file?
Keep it as a record, but don’t continue it. Start a fresh file for the LLC dated from the cutover so the two entities’ histories stay separate.
